Glad you all liked the series of Ellsberg paradox posts. If you're interested in these issues, check out the following fairly accessible article: Mark J. Machina, Choice Under Uncertainty: Problems Solved and Unsolved, Journal of Economic Perspectives, Summer 1987, at 121.

My favorite part of this series was the remarkable fact, given the forum, that not a single commenter mentioned (in a snarky aside, an off-topic political remark, whatever) the fact that the Ellsberg Paradox is named after Daniel Ellsberg (who, proving that he's nobody's fool, developed the paradox), the leaker of the Pentagon Papers.

I don't see what's so shocking. I guess maybe it's shocking if you're an economist or an economist-sympathizer. Economics presumes perfectly confident people, but in fact, people are pretty timid, especially when approached by a stranger offering them money within the framework of an inexplicably complicated scheme involving lots of probability calculations. Rather than "ambiguity avoidance", I would call this phenomenon "trying not to get conned".

You yourself commented on how hard it was to get people to take your hypothetical lotteries at face value. Surprise, people have a self-preservation instinct to look beneath the surface for the underlying angle.

Rather than "ambiguity avoidance", I would call this phenomenon "trying not to get conned".

If you read explanations people gave for their preferences many included ultimately relied on the idea that if strategy A/D made it easier for the person running the game to cheat; A/C makes it harder.

Ambiguity that can be used to mask "cheating". This applies to gambling, it applies to business agreements and it applies in life generally. Yes, one might say the rule is "to eliminate ambiguity in probability", but the underlying human impulse may well be: "Make it difficult for a possible opponent to gain by cheating."

Suppose Sasha took over the US as dictator and commanded by edict that you could never work again and you forfeit all your savings. He then announced that you would be playing his game once a week for the rest of your life with the same bag of balls. This could be your only source of income. I have set this up to make you very risk adverse. What strategy would you take then?